Case Summary (G.R. No. 139465)
Petitioner(s)
Tony N. Chua, Jimmy N. Chua, and Ernest T. Jeng — officers of NF Agri-Business Corporation and signatories to the trust receipts executed for imported agricultural feed products.
Respondent(s)
BDO Unibank, Inc. — complainant and holder of the trust receipts; Office of the Secretary of Justice and the City Prosecutor of Makati City as prosecutorial respondents in the procedural history; Court of Appeals and Supreme Court as appellate bodies.
Key Dates
Trust receipts executed in 1999 and January 21, 2000; trust receipts payable within ninety days of execution. BDO demand for payment dated December 16, 2008 (outstanding P17,430,882.88). City Prosecutor dismissal resolutions dated November 25, 2009 and March 12, 2010. DOJ affirmed dismissal on June 1, 2010, then reversed and found probable cause on March 30, 2011; motion for reconsideration denied February 20, 2012. CA decision affirming DOJ dated May 29, 2014; CA denial of reconsideration dated October 15, 2014. Supreme Court decision (First Division) rendered June 15, 2022. Because the decision date is after 1990, the 1987 Constitution is the governing constitutional framework.
Applicable Law
- Presidential Decree No. 115 (Trust Receipts Law), in particular Section 4 (definition and duties under a trust receipt) and Section 13 (failure to remit proceeds or return goods constitutes offense treated as Estafa under Article 315(1)(b) of the Revised Penal Code).
- Revised Penal Code, Article 315(1)(b) (Estafa).
- Civil Code (Republic Act No. 386), Article 1292 — governing novation as a mode of extinguishing obligations and the test for express or implied novation.
- Controlling prosecutorial and appellate standards on probable cause and on the limited scope of the Supreme Court under Rule 45 as to questions of law.
Factual Background
In 1999 Equitable Banking Corporation issued letters of credit and imported goods (Peruvian fish meal and various soybean meals) for NF ABC. The imported merchandise was delivered to NF ABC, and petitioners executed four trust receipts: FSA 70410361PRL (June 16, 1999) for P4,111,175.25; FSA 704100470PRL (July 1, 1999) for P8,749,580.10; FSA 704100453PRL (September 8, 1999) for P3,850,507.46; and FSA 704100470PRL (January 21, 2000) for P3,698,375.42 — total P20,409,638.23. The trust receipts required payment within ninety days, but NF ABC failed to remit payment or return the goods. On December 16, 2008, BDO demanded payment of P17,430,882.88; demand went unheeded, prompting BDO’s Complaint‑Affidavit for violation of the Trust Receipts Law.
Petitioners’ Defenses and Contentions
Petitioners contended that NF ABC was severely affected by the 1999–2000 Asian financial crisis and successive typhoons, that the goods were perishable and difficult to sell (some perished), and that they at all times intended to pay. They negotiated with the bank and executed written agreements establishing new payment schedules, including issuance of postdated checks stretching payments through April 2002 and later through March 2004. Petitioners asserted that these agreements effected a novation converting the trust receipt obligations into a simple loan (debtor-creditor relationship), thereby extinguishing the original trust receipt obligations and forestalling criminal liability under the Trust Receipts Law; they also invoked estoppel against BDO and sought injunctive relief to prevent enforcement.
Procedural History — Lower Proceedings
The City Prosecutor of Makati City dismissed the Complaint‑Affidavit on November 25, 2009, finding novation and lack of probable cause, and concluding there was no dishonesty or abuse of confidence. The DOJ (Chief State Prosecutor) affirmed that dismissal on June 1, 2010. BDO filed for reconsideration; the DOJ reversed on March 30, 2011, finding no novation and sufficient probable cause to direct filing of four counts of Estafa under Article 315(1)(b) in relation to PD No. 115; the DOJ denied reconsideration on February 20, 2012. Petitioners petitioned the CA via certiorari; the CA on May 29, 2014 affirmed the DOJ, and denied reconsideration on October 15, 2014. Petitioners then filed a Petition for Review on Certiorari to the Supreme Court.
Central Issue Presented
Whether the Court of Appeals erred in affirming the Secretary of Justice’s finding of probable cause to charge petitioners with Estafa (Article 315(1)(b) RPC) in relation to the Trust Receipts Law, specifically whether the execution of subsequent payment agreements novated and thus extinguished the original trust receipt obligations so as to preclude criminal liability.
Supreme Court Ruling — Holding
The Supreme Court denied the petition. It held that the CA did not commit grave abuse of discretion in affirming the DOJ’s finding of probable cause. The Court concluded that (1) violation of Section 13 of the Trust Receipts Law is malum prohibitum — mere failure to turn over proceeds or return goods constitutes the offense regardless of intent to defraud; (2) petitioners admitted failure to remit proceeds or return goods; (3) the evidence did not show novation of the trust receipt obligations; and (4) therefore probable cause existed to charge four counts of Estafa under Article 315(1)(b) in relation to PD No. 115. The petition for injunction or TRO was denied.
Legal Reasoning — Trust Receipts Law and Malum Prohibitum Nature
The Court reiterated Section 4 of PD No. 115 defining trust receipts and the entrustee’s obligation to hold goods in trust and to turn over sale proceeds or return unsold goods. Section 13 makes failure to do so equivalent to Estafa under Article 315(1)(b) of the RPC. Because the statutory offense is malum prohibitum, proof of intent to defraud is immaterial; the mere failure to remit proceeds or return goods, when established, suffices to constitute the offense. Petitioners’ factual explanation of economic hardship and perishability did not negate the statutory characterization or the existence of probable cause.
Legal Reasoning — Novation Analysis and Standard of Review
The Court applied Article 1292 of the Civil Code: novation extinguishes an obligation only if expressly declared in unequivocal terms or if the old and new obligations are incompatible in essential elements (object, cause, principal conditions). Novation is not presumed and must be proven. The Court emphasized that establishing novation is a question of fact and, under Rule 45 review, the Supreme Court is limited to questions of law and will not disturb factual findings of lower authorities absent the exceptions, which were not present. The CA and DOJ found no written express novation and concluded the new payment schedules were merely modificatory and supplementary, expressly recognizing and reviving the original obligation rather than extinguishing it. The Court found no basis to disturb those factual determinations.
Application of the Novation Test to the Facts
Applying the incompatibility test, the Court found the object (payment of the amount owed under the trust receipts) remained the same and continued to exist; the new schedules extended the term for payment but did not
Case Syllabus (G.R. No. 139465)
Nature and Procedural Posture
- Petition for Review on Certiorari under Rule 45 (G.R. No. 214960, decided June 15, 2022) challenging the Court of Appeals (CA) May 29, 2014 Decision and October 15, 2014 Resolution in CA-G.R. SP No. 124558.
- The CA decisions affirmed Secretary of Justice (SOJ) Resolutions of March 30, 2011 and February 20, 2012 which found probable cause for filing four counts of Estafa under Article 315(1)(b) of the Revised Penal Code (RPC) in relation to Presidential Decree No. 115 (Trust Receipts Law) against petitioners.
- The SOJ Resolutions reversed an earlier June 1, 2010 Resolution (which had affirmed the City Prosecutor of Makati City’s November 25, 2009 and March 12, 2010 Resolutions) that had found lack of probable cause to charge petitioners with violation of the Trust Receipts Law.
- Reliefs sought by petitioners included cancellation of the SOJ orders and, alternatively, issuance of a writ of preliminary injunction and a temporary restraining order (TRO) to enjoin enforcement of the SOJ resolution.
Factual Antecedents — Parties and Transactions
- Private respondent BDO Unibank, Inc. (BDO) is the surviving entity of mergers involving Banco de Oro Universal Bank, Inc., Equitable PCI Bank, Equitable Banking Corporation (EBC), and PCI Banking Corporation.
- Petitioners Tony N. Chua, Jimmy N. Chua, and Ernest T. Jeng were responsible officers of NF Agri-Business Corporation (NF ABC).
- In 1999 EBC issued commercial letters of credit and imported merchandise (Peruvian fish meal and various kinds of soybean meals for agricultural purposes) for NF ABC’s account; the imported merchandise was delivered to NF ABC.
- Petitioners executed four trust receipts in favor of the bank, payable within 90 days of execution, with the following particulars as stated in the record:
- FSA 70410361PRL — June 16, 1999 — P4,111,175.25
- FSA 704100470PRL — July 1, 1999 — P8,749,580.10
- FSA 704100453PRL — [September] 8, 1999 — P3,850,507.46
- FSA 704100470PRL — [January] 21, 2000 — P3,698,375.42
- Aggregate total of the trust receipts: P20,409,638.23
- NF ABC failed to pay the trust receipts when due; on December 16, 2008 BDO demanded payment of outstanding obligation amounting to P17,430,882.88; NF ABC failed to turn over proceeds of sale of the goods or return the goods if not sold, prompting BDO to file a Complaint‑Affidavit with the City Prosecutor, Makati City.
Petitioners’ Defenses and Assertions
- Petitioners contended NF ABC was severely affected by the Asian Financial Crisis (1999–2000) and successive typhoons, that the goods were perishable, and that they encountered difficulty finding buyers, resulting in sales at non‑profitable prices and loss due to perishing of some goods.
- They asserted continued commitment to pay, negotiations with BDO, and a written agreement on terms of payment and interest.
- Petitioners alleged execution of postdated checks originally until April 2002, later revised to a schedule extending postdated checks until March 2004, reducing the outstanding obligation to P17,430,882.88.
- Principal legal contention: the trust receipt transactions were novated into a simple loan by virtue of the new, long‑term payment schedule; therefore, no criminal liability under the Trust Receipts Law could attach. Petitioners further argued estoppel against BDO for insisting on the original trust receipt transaction.
City Prosecutor Determination
- In a Resolution dated November 25, 2009 the City Prosecutor of Makati City dismissed the Complaint‑Affidavit for lack of probable cause, holding:
- There was novation because the long‑term payment scheme was inconsistent with liability under the trust receipts.
- The Trust Receipts Law’s purpose to punish dishonesty and abuse of confidence was not implicated because there was neither dishonesty nor abuse of confidence by petitioners.
- BDO’s motion for reconsideration was denied by the City Prosecutor; BDO then filed a petition for review with the Department of Justice (DOJ).
Initial DO J (Chief State Prosecutor) Action; Affirmation of Dismissal
- On June 1, 2010 the DOJ, through the Chief State Prosecutor, affirmed the dismissal, finding no dishonesty or abuse of confidence by petitioners.
- The DOJ noted petitioners’ default was due to the economic crisis and the perishable nature of the goods, which compelled sales at non‑profitable prices to effect partial payments to the bank.
- The dispositive ruling denied BDO’s petition for review.
SOJ Reversal and Directives (March 30, 2011 and Feb 20, 2012)
- BDO moved for reconsideration; the SOJ issued a March 30, 2011 Resolution reversing the June 1, 2010 Resolution and finding probable cause:
- The SOJ concluded there was no novation of obligations under the trust receipts; modifications in payment schedule did not render the obligations incompatible but merely modified the terms.
- The parties did not intend novation to extinguish rights and obligations under the trust receipts.
- The substantive gravamen of the offense is petitioners’ failure to turn over proceeds of sale or return the goods themselves if unsold; that failure established proba